You’ve probably heard about these debt myths multiple times, but it’s time to debunk them!
If you’re an adult who’s been managing your finances for at least a good couple of years, you likely have a debt of some form. According to experts, over three in five Americans, which means 61% of the adult population, are in credit card debt, with an average balance of $5,875. Moreover, the combined mortgage debt of all Americans is over $12 trillion, or 84 million mortgages. As the data says, 43.2 million American borrowers are in default on their federal student loans.
These numbers don’t include commercial, personal, or auto loans, credit lines, or other forms of debt. You would think that Americans would be better at distinguishing fact from fiction, given how much debt they bear.
However, we learn as we grow, and as we all know, it’s easier to believe than debunk myths. Speaking of that, there are many debt myths around, and they can mess with your finances. Nobody wants to make money mistakes and be left penniless, so in today’s article, we’ll debunk some of the most popular debt myths. Let’s begin!
Debt myth 1: every debt lowers your credit score
While it’s commonly known that every type of debt can lower your credit score, that’s not true. Contrary to popular belief, taking on debt and successfully managing it can give your credit score a boost.
To get a credit score, you first need to build a credit history. Once established, you can improve your score by focusing on several factors, such as your credit utilization ratio, the length of your credit history, and your payment history.
…Have you ever used this technique to boost your credit score? Did you succeed? If you have any tips for us, we’d love to read them in the comments below!
Debt myth 2: how bad is it?
Another well-known misconception is this: all debt is bad. Well, no! As long as you know how to turn it in your favor. When you’re in debt but you handle it sensibly, it might be a useful tool in your financial toolbox.
Unfortunately, a lot of people associate debt with something negative, such as a huge financial loss. Many of us have seen our family or someone close to us suffer greatly from debt, lack general financial literacy, think credit is hard to get, and be unaware of the advantages of debt when used wisely. These stigmas are unjust, as debt can be used as a tool to increase your wealth. Take real estate investments, for example. This allows you to accumulate wealth and generate money for mortgage repayment.
Information is power, which is why it’s always advisable to talk to financial experts about your problems and ask questions. Do your research, read more about the subject, and get familiar with the terms. When you know these, you can easily avoid all debt myths and use them to your advantage.
Debt myth 3: it will ruin your finances
There’s no doubt that accumulating unsustainable credit card debt is one of the worst financial decisions you can make. However, with careful use, credit cards can help you manage your money by offering bonus points and other benefits.
Experts say that using these benefits is a terrific way to get cash back or discounts on regular products. Making wise use of your credit cards is the secret to maximizing their benefits. This entails making timely payments and never going over what can be paid off in full by the due date or within a reasonable length of time.
…Keep reading to discover other debt myths debunked!
Debt myth 4: declaring bankruptcy is always a smart idea
This couldn’t be further from the truth. Filing for bankruptcy should be your last option after you try every other method possible because it can have harsh long-term consequences.
Experts say it can complicate future financial transactions, stay on your credit report for up to ten years, and seriously harm your credit score. Moreover, filing for bankruptcy might also lead to asset loss, as certain properties might be liquidated or affected. And don’t forget that the process involves legal and financial costs.
In some cases, this might carry social stigma and limit your ability to find accommodation and work. Not all debts are erased, so you can still be responsible for payments on loans for education or child support. Before you make any radical decision, you should investigate other options, such as debt consolidation, credit counseling, or negotiation with creditors.
Debt myth 5: after you marry, your spouse’s debt is your responsibility
This myth is very popular among people, and it makes future spouses skeptical about potential financial problems. But not anymore, because we’ll debunk this debt myth together! According to experts, neither of the spouses is required to pay off the debt the other incurred before getting married.
On the other hand, that can completely change if you’re added as a joint account holder of a debt or if you put your name on a loan’s promissory note. If that’s not the case, each account holder is individually liable for the debts that are listed in their names, so there’s no need to worry.
Debt myth 6: you need to pay for debt advice
Many people who are in debt struggle to pay for it, but they don’t want to ask for help, fearing that the cost of advice is skyrocketing. The good news is that you can receive debt advice without charge. According to a 2023 survey, one in three (32%) of the 2,000 people surveyed stated they would not seek financial assistance because they did not want to foot the bill.
However, if you want to learn how to manage your finances and obligations, many charitable organizations can offer you free guidance and helpful assistance. If they think it’s appropriate and the best option for you, they can also set up a debt solution, like an individual voluntary arrangement (IVA) or debt management plan (DMP). The moral of the story? Don’t be afraid to ask for help!
Debt myth 7: it’s best to apply for a loan with a clear purpose in mind
Did you know that personal loans are more flexible to use than specialty loans? You don’t need to tell the bank the reason for your loan, unlike a renovation loan that is normally awarded to your contractor based on the renovation estimate after approval.
You will have complete discretion over how to use the loan amount, from outfitting your new house to covering a portion of your renovations. As we’ve previously said, make sure you read more about this and ask a professional for help and guidance.
If you’re in debt and you want to plan how to pay it off, here’s a planner that will help you! It’s easy to follow, friendly-structured, and I couldn’t recommend it enough! Did you find this article helpful? If you want us to debunk more debt myths, leave a comment below, and we’ll do our part. II. Take care of your finances!
Until next time, here’s another great post for you to check out: Retirement Red Flags: Cities to Stay Away From
